A woman pushes a shopping cart past Christmas decorations displayed for sale at a Wal-Mart.
Patrick T. Fallon | Bloomberg | Getty Images
Inflation has come down a lot year-over-year, the stock market is more ebullient than it has been in a year, but retailers don’t expect that to change what is shaping up to be a downbeat holiday spending season in 2023. An early read of peak season order activity shows retailers ordering less and expecting the consumer to be on the lookout for discounts and freebies to entice them to buy more, according to the latest Tech Zone Daily Supply Chain Survey.
Last summer, big box retailers Target and Walmart surprised the market when they revealed huge inventory builds that led to a period of steep markdowns. Many retailers are still drawing down inventories now as peak season for orders begins. The big box leaders described during recent Q1 earnings reports a consumer that is spending less, and other new Tech Zone Daily retail surveying indicates that the consumer situation continues to deteriorate. The unseasonable items clogging warehouse shelves have been a problem of varying degrees for all respondents.
“Cleary, inventory and inflation concerns remain top of mind for apparel and footwear executives as we enter peak shipping season,” said Stephen Lamar, President, and CEO, of the American Apparel & Footwear Association (AAFA).
The majority of respondents expect a lower peak season compared to last year, with 21% of those surveyed expecting the level of orders to be the same.
The American Footwear and Apparel Association, National Retail Federation, Council of Supply Chain Management Professionals (CSCMP), and United National Consumer Suppliers (UNCS) were among respondents to the Tech Zone Daily survey, which was conducted May 24-June 11 among 147 respondents. The survey was in the field during a period of time that coincided with West Coast port labor slowdowns that increased fears about potential inflationary impacts of supply chain congestion, before a tentative deal was reached between port management and the labor union on Wednesday.
Even with inflation down from over 9% last summer to 4% in the most recent CPI reading for May, 71% of those taking the survey said they are concerned the consumer will cut back on holiday spending in response to inflation.
Roughly two-thirds (67%) of those surveyed expect consumers to look for discounts.
Based on the concerns about cutbacks by consumers, 77% of all items being ordered this holiday season are middle-price point items, including jackets.
The majority of items in warehouses are sweaters followed by boots, dresses, and evening purses.
More than half (52%) of orders will be promotional products, like free gifts with purchase.
Only 17% of items ordered are high-end items in apparel, electronics, and memorabilia.
CEOs in the retail sector, from jewelry to fashion, have recently indicated that even though the high-end consumer has remained strong in a softer economy, there are signs that the luxury market has peaked.
Jon Gold, vice president of supply chain and customs policy at the National Retail Federation, said the survey results highlight the ongoing stress and challenges that retailers and other businesses are facing in their supply chains.
“Retailers are constantly working to ensure they have the right inventory mix to meet consumer demands, especially as we enter the peak shipping season for the holidays,” said Gold. “The ongoing challenges with the West Coast port labor negotiations and associated disruptions have certainly impacted some supply chain decisions. Many shippers have shifted cargo away from the West Coast and may decide to permanently shift away, even after the tentative deal is finalized.”
The labor union has said it will take months to ratify the deal among its rank and file members.
Previous Tech Zone Daily Supply Chain Survey data has shown supply chain managers to be wary of moving shipping back to the West Coast after a year of labor volatility. When asked in the latest survey if they were returning more freight to the West Coast, just about half (51%) indicated they were not.
Traditionally, retail sector orders for peak season items are placed in late winter, or early spring. This year, with many retailers still drawing down inventories, the timing of placing holiday orders has been more varied. Seventeen percent of respondents said they placed their orders for holiday items three months ago; 12% said they placed their orders just two months ago, 14% of respondents said they ordered six months ago; another 14% said they ordered more than six months ago.
Labor costs and bloated inventories continue to be a drag on participants followed by warehouse costs and labor shortages.
Trucking, ground, rail profit hits
For ground logistical firms, rail companies, and short-haul trucking, moving holiday products during peak season is a lucrative and critical time of year for making money. Given the anticipated consumer pullback, freight order volume is not expected to exceed last year’s levels for the majority of logistics firms, with 43% of respondents saying they would be moving less. One quarter (26%) expect freight volume to be at a similar level as last year; 21% forecast higher freight activity. The largest subgroup of survey respondents who predict placing higher freight orders (42%) pegged the increase in a range of 6%-10%. Respondents that said freight volume will be down provided a range from 6% to more than 15%.
Mark Baxa, CEO of the Council of Supply Chain Management Professionals, said the results reflect the overarching theme of a conservative approach with inventory this peak season.
“More so, supply chains are essentially taking a wait-and-see approach to shifting back to the West Coast as a whole,” said Baxa. “Inventory carryover and concerns over sentiment that consumers are seeking price discounts due to inflation are key factors.”
Given the uncertainty within the consumer and the supply chain, Tech Zone Daily asked respondents asked if they are considering deploying more AI for deeper inventory analysis, but the majority (57%) said they are not, while 31% said they are.